A vendor handles an apple at fruit stall in Gangtok, Sikkim, India (Photographer: Prashanth Vishwanathan/Bloomberg)

Slowing Demand Poses Downgrade Risk for Indian Earnings Outlook

(Bloomberg) -- A moderation in demand amid expectations of slowing economic growth in the second half of the fiscal year through March has put Indian companies at risk of earnings downgrades, analysts say.

These negative factors have cooled expectations that had been boosted by lower crude oil prices and slowing inflation. Though earnings growth estimates for the year through March have come down to 15-16 percent year on year, a level Citigroup Global Markets Inc. sees as more reasonable, the brokerage still sees risk of further downgrades given a weak first half and tepid expectations for the third quarter.

“Earnings disappointments have been a norm in the past five-plus years and FY19 is no exception,” Citigroup analysts Surendra Goyal and Vijit Jain wrote in a note.

India’s economy will expand by 7.2 percent in the year through March, according to the government’s first official estimate. While that would be the fastest pace in three years, it’s slower than the central bank’s projected pace of 7.4 percent.

“The high frequency data points still remain patchy and indicate volatile recovery trends, especially the automobile monthly numbers where one has seen broad-based moderation across two-wheeler, passenger vehicles and commercial vehicle sales," Motilal Oswal Securities Ltd. analysts led by Gautam Duggad wrote in a note.

Here’s what analysts expect from the October-December quarter results season that kicks off Thursday with Asia’s top software exporter, Tata Consultancy Services Ltd.

Reliance Securities

  • Banking sector expected to lead earnings among sectors as both credit growth and pricing power have returned to lenders. Treasury gains will be significant and add to profits. State-run banks to report higher profit growth on a lower base. Top picks are Axis Bank, ICICI Bank, Federal Bank and Bank of Baroda.
  • Consumer sector likely to show healthy growth in revenues and profits. Expects Nestle, Marico and Hindustan Unilever to report strong growth. Titan likely to report robust quarter in terms of revenue. Top picks Asian Paints, Nestle, Titan and Marico.
  • Oil & gas sector likely to put up muted performance owing to inventory losses which will drag overall earnings. Profit growth, excluding banks and energy is pegged at 10 percent.


  • Expects 12 percent earnings growth for Nifty 50 companies excluding oil marketing companies. Despite support from financials, earnings growth expectations are low given margin pressure in auto and a weak quarter for metals due to a decline in commodity prices.
  • Potential positive surprises could come from Ambuja Cements on better cost management, ICICI Bank on large recoveries from bad loans, State Bank of India on gains on bond holdings, Zee Entertainment on strong advertising momentum.
  • Uncertainty due to national elections and global growth concerns could pressure foreign sentiment and inflows.
  • India valuations, while off peak, still relatively expensive.

Antique Stock Broking

  • Expects modest revenue growth for information technology sector, with mid caps expected to post better performance than large caps on deal pipelines.
  • Sees moderate improvement for steel companies in volume growth although sales realization to remain flat.
  • Oil & gas to see heavy inventory losses on account of collapse in crude prices, and weaker refinery margins are expected to weigh on earnings.

Motilal Oswal

  • Expect Nifty profits to increase by 8 percent.
  • 3Q earnings will be lackluster as global cyclicals like metals, oil and gas are looking jaded given correction in commodity prices.
  • Trends for automobiles have worsened at a fast clip, with a sharp moderation in volumes and profit growth.
  • Financials are likely to drive 3Q earnings with corporate banks leading from the front. State-run banks may deliver a healthy performance aided by treasury marked-to-market gains and improving asset quality trends.
  • Information technology likely to post a fourth straight quarter of double-digit profit growth.
  • Apart from political uncertainty, deceleration of earnings momentum is one of the key risks for 2019.

©2019 Bloomberg L.P.